When Linda Leconte moved to Dallas last year, in part to be closer to family, the 51-year-old New Yorker was ready for the change. She lived with a roommate and earned just enough as a technical sales associate at a lighting design company to keep paying off student debt she incurred as a returning student in her mid-30s and contributing a small monthly amount to a Roth individual retirement account and a health-savings account.
Leconte says when she left the city, she had approximately $100,000 saved between those two accounts and a 401(k) from a previous job—but figured she needed at least three times that amount just for future healthcare costs. The move, she hoped, would help reduce her monthly expenses so she could begin to save more. “I always felt like I was just making it in the city,” says Leconte.
While Leconte is doing better than many around her age, a retirement savings shortfall looms for millions of workers. According to a recent Sagewell Financial survey, roughly 1 in 4 Americans between the ages of 55 and 65 say they’ve saved only $50,000 or less for retirement.
The good news, financial advisors say: It’s not too late to build up your savings. For starters, the government encourages savers above age 50 to make catch-up contributions in tax-deferred 401(k)s and individual retirement accounts. Beyond catch-up contributions, advisors say, building up retirement savings will depend on having realistic expectations and what you’re willing to do to get there.
“If you want to save more money in retirement—and this is going to be true whether you’ve got a million bucks saved and feel like you should have five, or you’ve just turned 50 and only have $50,000—you have a few options,” says Andrea Hamilton, a wealth advisor at Perigon in San Francisco. “You can earn more money. You can work longer and retire at an older age. And you can spend less so you save more.”
Budget and Boost Savings
“Ignorance is not bliss in personal finance,” says Dan Ludwin, president of Salomon & Ludwin, a financial advisory firm in Richmond, Va. “You need to have the tough conversations about your financial situation, start to explore different scenarios, like at what age you want to retire and how much money you’ll need monthly, then come up with a plan.”
For example, if you think you want to retire at age 67 and expect you’ll need $6,000 a month for expenses, then you need to assess your current holdings, examine what you’re spending your money on, and then create a monthly budget and investing plan based on that information and your retirement goal. “If you don’t think you’ll be able to hit that mark, then you need to adjust the levers—maybe you’ll have to retire at age 70 instead or figure out a way to live on $5,000 a month,” says Ludwin.
By working longer, he adds, you should be able to maintain savings and possibly delay drawing Social Security, which rises each year it goes unclaimed from age 62 to 70.
And when digging into your spending, it pays to account for everything, Hamilton adds. “You have to go past the big-ticket items, like your mortgage payment, car payment, and insurance, and literally look at every item that goes into and out of your bank account each month,” she says. Then, you can start to make cash-flow adjustments you can live with, she says.
Finally, you may need to make some big life shifts, such as downsizing to a smaller house or looking for a home in a lower-cost-of-living area. For Leconte, moving from New York City has made a noticeable difference in her spending habits. Though her rent is more in Dallas as she lives alone, the amenities offered at her new place means she can spend more time entertaining at home and less on going out like she used to in New York. Plus, the apartment comes with access to a gym and pool, so she’s been able to cut costs there too. She estimates a total savings of about $500 a month.
Boost Your Income and Investments
Financial pros say the easiest way to bring in more income is to ask for a raise at your employer, or otherwise tap your skills to find a position that commands more pay or add in sideline work.
The latter is what Leconte did. Though she was able to keep her job and work remotely from Dallas, she has picked up a side hustle doing social media management for a former employer. “I use that income to pay down my student loans,” she says.
Also key: Make sure you know how much you need to earn so that you can be selective about your next act, says Marguerita Cheng, CEO of Blue Ocean Global Wealth in Gaithersburg, Md. “I had a client who got laid off at around age 60. After reviewing his finances, I told him that while he had to keep working for several more years, he didn’t need to earn quite as much as he had been before. That gave him tremendous peace of mind—and allowed him to find a job that wasn’t as stressful or demanding,” she says.
Adjusting your investments to increase your rate of return can also be done, but “no one should take on more risk than what they’re comfortable with,” says Cheng.
To begin with, you need to factor in how much fixed income you need currently and how soon you’ll need to touch the rest of your money, which will help determine the amount of risk you can take with your portfolio, says Hamilton. In other words, the longer a horizon you have before tapping into a chunk of your funds, the more aggressive you can be with your investments. “Money you need now should be invested with no risk. But if you think you won’t need the rest of your funds for another 30 years, then you could consider a higher-risk investment,” she says.
As far as investment products are concerned, Ludwin says he typically recommends low-fee exchange-traded funds “because cost absolutely matters.” Annuities can also be a good choice for some people, though advisors warn they can be expensive. “They may provide guaranteed income, but you’re paying for that guarantee,” says Ludwin.
Whatever you do, “don’t be paralyzed with fear or panic,” says Hamilton. “Start by taking little steps if you need to, because every little bit is going to help.”
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